Narrow network plans may help insurers' bottom line

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An increasingly popular way to control rising healthcare costs has become so-called narrow network plans in which businesses and individuals get a sizeable break on their premiums by agreeing to only have access to a limited network of doctors and hospitals.

"Employers are willing to limit choice to create a better cost advantage," says Joe Zubretsky, chief financial officer of Aetna. Employees agree. They've faced high out-of-pocket costs and are now willing to lose access to some doctors so they can have cost savings instead.

Health payers are hearing these calls and responding--for good reason. Narrow networks could provide increased profit opportunities for insurers. More and more employees are willing to accept "tighter management, different networks and structures," says Health Net CEO Jay Gellert. "That product provides margin expansion opportunity."

But these aren't your grandmother's HMO plans; they are polished and updated for modern times. Blue Cross Blue Shield of Massachusetts just introduced such a plan, called Hospital Choice Cost-Share, that adds extra charges when patients get certain services at 15 hospitals the insurer says have higher costs than other providers. Patients pay an extra $1,000 for inpatient care or outpatient surgery at one of these hospitals, for example, and an extra $450 for high-tech imaging services. Small businesses and individual policyholders who choose BCBSMA's new option can expect their premium increases to be reduced by half, to about 5 percent. "We believe our members can get the same quality of care in the lower-cost, high-value category," says Jay McQuaide, a senior vice president with BCBSMA.

HealthPartners last year introduced a similar network called Perform, which excludes the Mayo Clinic in Rochester. If any of the 34,000 customers in the Perform network want to include Mayo, their premiums could increase by up to 20 percent.

Alas, all that glitters is not gold. Massachusetts Attorney General Martha Coakley last year released a report which found that, although the prices negotiated between hospitals and insurers for services varied considerably, there was no correlation between higher prices and better quality of care.

Many provider associations agree and have tried to stop, or at least amend, the current process insurers use to decide which doctors will be included in narrow networks. The California Medical Association last September filed a lawsuit trying to block Blue Shield of California's "Blue Ribbon" quality recognition program. Doctors said the data and methodology behind the designation are flawed, and that physicians who didn't qualify for a blue ribbon would lose business.

Doctors are also concerned that narrow networks risk undermining the doctor-patient relationship when certain physicians are restricted from a plan, particularly for chronically ill patients with long-standing doctor relationships.

Despite these and similar challenges to limited network plans, they seem to be on the rise, at least in markets like San Diego, Chicago and New York. Many insurers say they are still figuring out how to persuade people to choose these plans rather than force them to enroll. "What's not changed are the old techniques of black-belt managed care," said Mark T. Bertolini, Aetna's president. "We have to create the same kind of model without the 'Mother, may I.' What we want is the 'Mother, should I.'"

When they solve that challenge, maybe insurers will have found their real pot of gold. - Dina